Supreme Court Endorses A Trio Of Necessary Considerations For The Illegality Defence

• Published date: 25 January 2021
• Subject Matter: Finance and Banking, Litigation, Mediation & Arbitration, Real Estate and Construction, Criminal Law, Charges, Mortgages, Indemnities, Financial Services, Trials & Appeals & Compensation, Professional Negligence, Conveyancing, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: BLM
• Author: Ben Parks

Stoffel & Co v Grondona [2020] SC 42

These days we don't use Latin much as part of everyday speech but the Latin phrase ex turpi causa as shorthand for the illegality defence is something of an exception. At its simplest a defendant deploys the defence to seek to persuade the court that where a claimant's claim arises from illegal or immoral conduct no cause of action exists; that a claimant wrongdoer should not be able to profit from their own wrongdoing.

Given the myriad of matters and transactions in which professionals are involved it can, in the right situation, be a useful tool in the armoury for the defence of such claims. Whilst no right thinking person would want a claim based on illegal or immoral conduct to succeed (the defence arises in the context of an application of public policy) the courts have wrestled with the right test (resolved to an extent by the Supreme Court in Patel v Mirza [2016] UKSC 42 - see below) and then the way that test is applied to a given set of facts.

In the context of a claim against solicitors the illegality defence has again found its way to the Supreme Court in Stoffel & Co v Grondona.

The Facts

The claimant and a Mr Mitchell entered into a contrived business arrangement as to various properties (including flat 73b Beulah Road) whereby mortgage loans to be secured on those properties would be in her name; Mr Mitchell would collect the rents and pay the mortgages with the claimant receiving 50% of the net profit on the properties when they were sold.

In October 2002 the claimant purported to purchase Mr Mitchell's leasehold interest in flat 73b for '90,000 funded by a mortgage advance of '76,500 from Birmingham Midshires (BM) with a charge in favour of BM to be registered against the property. Solicitors Stoffel & Co acted for the claimant, Mr Mitchell and BM in that transaction. Whilst Stoffel paid over the BM mortgage advance to discharge the existing charge secured on the property, they failed to register the redemption of that charge, the claimant's purchase and the BM charge. Mr Mitchell remained the registered proprietor of the property; he secured further lending against the property and over time the BM mortgage fell into arrears.

BM pursued a money judgment against the claimant (who remained personally liable on the mortgage) who defended that claim and brought a claim against Stoffel for the failure to register her purchase and the BM charge. Stoffel admitted the failure to register was a breach of duty...